Supply Chains

How raw materials become finished products through a sequence of transformations that no single organization controls.

The Basic Idea

A supply chain describes how a product — a drug, a chip, a loaf of bread, a car — gets from raw materials to the person who uses it. Not by one company in one place, but across many organizations, many locations, and many steps. The full path from origin to end use is the supply chain.

Consider a simple example end to end. A cotton shirt starts as a plant in a field in Texas or India. The cotton is harvested and sent to a gin, which separates fiber from seed. The fiber travels to a spinning mill — often in a different country — where it becomes yarn. The yarn goes to a weaving plant that produces fabric. The fabric goes to a dyeing facility, then to a garment factory — often in Bangladesh, Vietnam, or China — where it is cut and sewn into a shirt. The shirt is packed, loaded into a container, shipped across an ocean, received at a distribution center, and delivered to a store. By the time you pick it off the rack, it has crossed multiple countries and passed through eight or more separate organizations. That is its supply chain.

Now consider a more complex one. A smartphone contains a processor, memory, camera sensors, a battery, a screen, and hundreds of other components. Each has its own supply chain. The processor alone involves silicon refinement in Japan, chip design in California, fabrication in Taiwan, and packaging in Malaysia. The phone's supply chain is not a single line but a convergence of hundreds of separate chains, each with its own constraints and dependencies.

What Moves Through a Supply Chain

Three things move through a supply chain, and understanding all three is necessary to understand how the system works.

Materials. Physical stuff — raw materials become intermediate goods become finished products. Cotton becomes yarn becomes fabric becomes a shirt. Silicon becomes wafers become chips become devices. At each stage, something is physically transformed, and the transformation requires specific equipment, skills, and conditions.

Information. Orders, forecasts, inventory counts, quality reports, shipping schedules. Information tells each stage what to produce, when to produce it, and where to send it. When information flows well, the system coordinates. When it flows poorly — when demand signals are delayed, distorted, or invisible — stages make decisions based on incomplete pictures, and mismatches accumulate.

Decisions. At every stage, someone decides how much to produce, where to source materials, how much inventory to hold, which customers to prioritize. These decisions are guided by signals — prices, contracts, forecasts, regulations — and they shape how the system behaves. The decisions at one stage create the conditions that the next stage must respond to.

Why Supply Chains Have Structure

Supply chains are not randomly organized. Their structure — who does what, where, and in how many places — is shaped by constraints. A constraint is anything that limits what is possible: the physics of manufacturing, the cost of equipment, the time required to build expertise, the regulations that govern production.

When a manufacturing process requires billions of dollars in equipment, only a few companies can do it. When a raw material exists in only certain geographies, production concentrates there. When regulatory approval takes years, new competitors cannot enter quickly. These constraints are not choices — they are structural features of the physical and institutional environment. The supply chain's shape follows from them.

This is why different industries have different supply chain structures. A software company's supply chain is simple — code is written, compiled, and distributed digitally. A semiconductor company's supply chain spans continents and involves dozens of specialized firms, because the physics of chip manufacturing require extreme precision that only a few facilities worldwide can achieve. The difference is not in management decisions but in the underlying constraints.

Key Structural Properties

Certain properties appear across many supply chains, regardless of the specific product. Recognizing them helps make sense of how different industries work.

Concentration. When a stage of production requires rare expertise, expensive equipment, or specific natural resources, fewer companies can participate. This concentrates that stage in fewer locations and fewer hands. Concentration is efficient during normal operation and fragile during disruption — because there are fewer alternatives when something goes wrong.

Lead times. The time between deciding to produce something and having it available. Some stages are fast — a bakery can make bread in hours. Others are slow — a semiconductor fabrication plant takes three to five years to build. Lead times determine how quickly the system can respond to changes. Long lead times mean the system cannot adjust quickly, and mismatches between supply and demand can persist for years.

Buffers. Inventory held at various stages to absorb uncertainty. Buffers exist because information is imperfect and lead times create gaps between when decisions are made and when their effects arrive. Holding more inventory costs money. Holding less inventory increases vulnerability. The tension between efficiency and resilience is a structural feature of any supply chain that operates under uncertainty.

Dependency. Each stage depends on the stages before it. If a raw material becomes unavailable, everything downstream stops. If a key supplier fails, the companies that depend on it cannot simply switch to another — especially if qualification or certification is required. Dependencies create the pathways through which disruptions propagate.

Visibility. How much each participant can see of the rest of the system. A manufacturer may know its immediate suppliers but not the suppliers of those suppliers. A consumer may not know which country produced the components in their device. Visibility typically decreases with distance — the further you are from a stage, the less you know about its constraints. This is why disruptions often arrive as surprises to the people most affected by them.

Why This Matters

Understanding supply chains is not about logistics or operations management. It is about understanding how the physical world is organized — where things come from, what constraints shape their production, and what happens when those constraints bind.

A company's financial results reflect its supply chain position whether or not anyone is paying attention. A company that controls a bottleneck stage has different structural properties than one that operates at a substitutable stage. A company dependent on a single qualified supplier faces different risks than one with multiple sources. These structural realities persist across quarters and market cycles — they are not temporary conditions but features of how the system is built.

The supply chain articles on this site describe specific industries through this structural lens. Each one traces how physical constraints create the system's shape, where concentration and fragility emerge, and what those structural properties mean for the companies that participate in the system.